NZAuASB Meeting 8 April 2021

Here is a summary of the main matters considered at the meeting:

Non-Assurance Services

The NZAuASB welcomed Channa Wijesinghe, Chief Executive Officer, Accounting Professional and Ethical Standards Board (APESB) to the meeting, who provided an update on the Australian position regarding the provision of non-assurance services (NAS).

Both the NZAuASB and the APESB have concerns that the wording of the IESBA provisions is not strict enough and are considering how the NAS provisions could be strengthened. Of particular concern is the relatively low bar, “likely to prevail”, the firm is required to overcome in relation to tax advisory and tax planning services.

The NZAuASB and the APESB welcomed the opportunity to work together to achieve trans-Tasman harmonisation in this area, although there was also recognition that this need not necessarily result in exact alignment.

The NZAuASB noted the results of the survey undertaken following the February 2021 meeting. The survey provides useful evidence regarding user perceptions on auditor independence when an audit firm provides non assurance services to an audit client.

The Board discussed the following options for strengthening the international provisions in relation to NAS:

• Adopting the IESBA provisions with no or minimal change;
• A full prohibition of NAS to audit clients that are public interest entities; or
• Alternative solutions:
  1. Aligning the PIE requirements with the Auditor-General’s approach for audit service providers in the public sector, whereby additional services permitted are limited to those of an assurance nature (noting the broader nature of the definition of assurance engagement in the public sector); or
  2. A blacklist approach, as is being considered in Australia in response to the Joint Parliamentary Committee (JPC) inquiry.

The NZAuASB’s preliminary view is that a full prohibition is at odds with a principles-based approach, may be too restrictive and may have unintended consequences.

The NZAuASB and APESB are both leaning to a position where an “IESBA-plus” approach is needed, in the public interest, to address the issue primarily on a perception basis but also to recognise that even a reduced amount of NAS can introduce significant independence threats in some instances.

The XRB Board also discussed the matter at its April 2021 Board meeting, and the NZAuASB will consider it further at its June meeting with the objective of agreeing an exposure draft.

IESBA consultation on amendments to the PIE definition

The NZAuASB considered the draft submission on the IESBA exposure draft to amend the definition of a public interest entity (PIE) beyond the current international definition which is focused on “listed entities”.

In New Zealand, the NZAuASB has had a New Zealand specific PIE definition that is broader than “listed entities” and which has been in effect for a number of years. The NZAuASB is therefore very supportive of the IESBA’s project to broaden the global definition.

The proposed revisions:  

• Introduce an overarching objective for additional independence requirements for entities that are PIEs.
• Provide guidance on factors for consideration when determining the level of public interest in an entity.
• Expand the extant definition of PIE to a list of categories of entities that should be treated as PIEs, subject to refinement by the relevant local bodies responsible for standard setting as part of the adoption and implementation process.
• Replace the term “listed entity” with one of the new PIE categories, “publicly traded entity.” 
• Elevate the extant application material that encourages firms to determine whether to treat additional entities as PIEs to a requirement and include enhanced guidance on factors for consideration by firms.
• Require firms to disclose if an audit client has been treated as a PIE. 

The NZAuASB approved its final submission out of session after the meeting. In its submission the NZAuASB encourages the IESBA to reconsider the way in which the purpose of the PIE requirements has been articulated.  

With respect to disclosing whether an audit client has been treated as a PIE, there were mixed views among NZAuASB members, with some supportive of enhanced transparency and others less clear about what problem this would solve.  

The NZAuASB noted in its submission that an alternative suggestion to explore may be to provide more transparency on the impact of treating an entity as a PIE, rather than disclosing that the PIE requirements have been applied. 

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Corporate Fundraising

The Board welcomed Ian McLoughlin, Managing Partner Deals, PwC New Zealand to the meeting, who has been a member of the consultative group formed to develop a New Zealand specific standard on corporate fundraisings, based on the extant Australian standard which has been used by default in New Zealand for many years. Mr McLaughlin provided the Board with a briefing on the assurance landscape in New Zealand in relation to corporate fundraisings.

The Board had a first read of a draft standard, and discussed associated issues. The Board is expected to consider a second read draft at its September 2021 meeting.

NZAuASB Strategic Action Plan

The NZAuASB considered a new action plan for the years 2021-2026, in support of the XRB’s new five-year plan. The Board is expected to approve the action plan at its next meeting.

Alternative Assurance for Small Charities

The NZAuASB received an update on the progress to date on the domestic project alternative engagement for small charities.

The purpose of this project is to address the need for an alternative to traditional audit and review for small entities including charities, clubs and societies.

This is an important project in the New Zealand context where a large number of micro entities exist and where there remains a need for assurance, or something alternative to conventional forms of assurance even if there is no legal assurance requirement. The need could be driven, for example, by funding contract requirements or the need for stakeholder comfort over elements of a small charity’s governance or internal controls.

The Board expressed support for the proposed modular approach to the alternative engagement, but noted the need for a clear statement that it would not be an audit or a review. The Board also discussed the competency and independence requirements that would be needed for such an engagement.

To further inform the development of the alternative engagement standard the Board suggested liaising with Charities Services and other stakeholder groups, to get a clear understanding of what their expectations are and whether they would have an interest in further developing such an engagement together.